A firm has an issue of $1,000 par value bonds with a 9 percent stated interest...
A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 8 percent, the firm's bond will sell for __________ today. (Excel)
Homework Answers
Selling price of the Bond
- The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value.
- The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
- Here, the calculation of the Bond Price using financial calculator is as follows
|
Variables |
Financial Calculator Keys |
Figure |
|
Par Value/Face Value of the Bond [$1,000] |
FV |
1,000 |
|
Coupon Amount [$1,000 x 9.00%] |
PMT |
90 |
|
Market Interest Rate or Yield to maturity on the Bond [8.00%] |
1/Y |
8.00 |
|
Maturity Period/Time to Maturity [20 Years] |
N |
20 |
|
Bond Price |
PV |
? |
Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $1,098.18.
“Hence, the Selling price of the Bond will be $1,098.18”
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